Correlation Between Major Drilling and Costco Wholesale

Can any of the company-specific risk be diversified away by investing in both Major Drilling and Costco Wholesale at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Major Drilling and Costco Wholesale into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Major Drilling Group and Costco Wholesale Corp, you can compare the effects of market volatilities on Major Drilling and Costco Wholesale and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Major Drilling with a short position of Costco Wholesale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Major Drilling and Costco Wholesale.

Diversification Opportunities for Major Drilling and Costco Wholesale

0.6

Correlation Coefficient

Major Drilling  Costco Wholesale

Poor diversification

The 3 months correlation between Major and Costco is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Costco Wholesale Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale Corp and Major Drilling is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Major Drilling Group are associated (or correlated) with Costco Wholesale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Costco Wholesale Corp has no effect on the direction of Major Drilling i.e., Major Drilling and Costco Wholesale go up and down completely randomly.

Pair Corralation between Major Drilling and Costco Wholesale

Assuming the 90 days trading horizon Major Drilling Group is expected to under-perform the Costco Wholesale. In addition to that, Major Drilling is 1.43 times more volatile than Costco Wholesale Corp. It trades about -0.04 of its total potential returns per unit of risk. Costco Wholesale Corp is currently generating about -0.04 per unit of volatility. If you would invest  4,397  in Costco Wholesale Corp on December 22, 2024 and sell it today you would lose (214.00) from holding Costco Wholesale Corp or give up 4.87% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Major Drilling Group  vs.  Costco Wholesale Corp

Major Drilling Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Major Drilling Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Costco Wholesale Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Costco Wholesale Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Costco Wholesale is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Major Drilling and Costco Wholesale

The main advantage of trading using opposite Major Drilling and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Major Drilling position performs unexpectedly, Costco Wholesale can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Costco Wholesale will offset losses from the drop in Costco Wholesale's long position.

The idea behind Major Drilling Group and Costco Wholesale Corp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.